The surge of second-hand car sales since mid-2020, with an eventual surge in sale prices was no surprise given current adverse market conditions.

However, it seems that this trend is coming to an end as the supply of used cars is becoming squeezed following reduced car manufacturing output due to a prolonged semiconductor chip shortage.

Early pent-up demand is gone

Second-hand car sales were uplifted right after the easing of lockdown measures in the summer 2020, benefiting from the pent-up demand accumulated in previous months.

With the eminent fear of using public transportation, months-worth of new young drivers finally getting their licence, and affordability concerns of purchasing a new car amid increased economic uncertainty, demand for used cars soared. Especially, between July and October 2020, used car sales were the highest since 2014, reaching 2,883,748 transactions, according to The Society of Motor Manufacturers and Traders (SMMT).

However, sales started to fall back by November 2020, remaining down until February 2021, as compared with the same months during pre-pandemic levels of 2014-2019, as demand appeared to cool-off.

Chip shortage that maintained strong sales could soon end them

Second-hand car sales suddenly recovered in March 2021, remaining strong until June 2021. This time, it was the semiconductor chip shortage that became more evident, which combined with the low inventory of car manufacturers, stalled new cars’ production and sales.

Meanwhile, prices of used cars began to take-off, with the average price of a used car reaching up to the range of GBP17,000 ($21,809) and GBP19,000 ($24,374) in mid-2021, nearly 60% higher than 2019 levels as per traders, with one in five used cars sold at a higher price than their new model equivalent.

However, whether this supply shortage ends soon or not, second-hand car sales are to lose steam. In the case of supply issues in the automotive industry getting resolved early in 2022, which seems rather unlikely, new cars would be back on consumers’ top choice.

In the more likely case of the semiconductor chip shortage becoming prolonged as a result of trade wars, the supply of used cars will become even scarcer, as the car fleet will not be renewed. In fact, according to the most recent figures by SMMT, the number of second-hand car transactions in Q3 2021 was down by 6.2% against the peak of Q3 2020, as a result of tight supply.

This means that the price of used and older cars would reach an even higher point, closer to the price of a new car, thus making that option less attractive, with consumers deferring a car purchase. Even in such case, the prices of used cars would not drop substantially, as prospective sellers would avoid selling at a loss due to the higher price they had purchased a used car.

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